Twitter, Inc. (NYSE: TWTR) is a short-form text, image, video chat platform and open distribution network. An interest graph is created when users create multiple social networks based on their shared interests. The sale of advertising services accounts for the vast majority of the company's revenue. TWTR also generates revenue by licensing its data and offering mobile ad exchange services to other businesses.
Why Should Investors Book Profit?
- Margin Stress: The company reported gross margins of 64.6% in FY21 (ended December 31, 2021) compared to the industry Median of 72.3%, indicating significant stress on the topline performance. Further, the company reported a net loss of USD 221.41 million in FY21.
- Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 0.58x as of December 31, 2021, compared to the industry norm of 0.29x. Furthermore, its long-term debt-to-total-capital ratio was 36.8%, compared to the industry average of 17.9% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
- Open Source Risk: The company's products and services employ open-source software, and it will continue to do so in the future. The risk associated with open source licensing requirements is that open-source software may represent more hazards than third-party commercial software because open source licensors often do not give warranties or controls on software provenance.
- Technical weakness: TWTR’s prices moved up by ~52.49% from the recommended entry price and made a high of USD 54.57 on April 05, 2022. Price reached a crucial resistance level of USD 54.57 but were unable to break this level, indicating the possibility of a downside correction which may lead the prices towards the resistance turned support level USD 44.50. On the daily chart, RSI (14-period) is reached an overbought zone at 84.42 levels, supporting a downside correction. However, prices are still sustaining above the trend-following indicators 21-period SMA and 50-period SMA and may act as the support levels for the stock.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
TWTR's share price has inclined 56.72% in the past month and is currently trading close to the mid-point of its 52-week range of USD 31.30 to USD 73.34. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 64.75.
Considering the company's leveraged balance sheet, weak margin profile, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 50.98, as of April 05, 2022.
1-Year Technical Price Chart (as of April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.